By Daniel Hunter

The first health check of UK small and medium sized businesses (SMEs) on a city-by-city basis shows that many firms in our most vulnerable cities could face real challenges ahead as the effects of the recession and of spending cuts are felt by cities.

Small Business Outlook 2013, published by Centre for Cities and supported by global insurer Zurich, shows that the health of the local market is one of the most important factors in determining the success of SMEs. Almost two thirds of SMEs in some cities remain reliant on trading with customers in their local market.

Because the effects of the recession and austerity measures will be felt differently in different cities, some SMEs are likely to be more vulnerable to changes in their local market brought on by job losses, welfare cuts and constrained wages than others. SMEs in Cambridge, Crawley and Reading are likely to be best insulated against further cuts, while SMEs in Hull, Liverpool and Blackpool may feel the effects of their customers spending less money in their local economy far sooner and far stronger.

SMEs are critical to the success of the national economy. They represent 99% of businesses in cities and provide around half of all private sector jobs. This means that Government must prioritise the policies that can support this group of businesses to develop resilience to changes in local market conditions if economic recovery is to be sustainable.

Centre for Cities believes the Government should simplify the confusing mix of business support and work with local enterprise partnerships to find more effective ways of encouraging local small businesses to access relevant support.

UKTI should strengthen its local knowledge base and work with local partners and business representatives to help businesses understand how they can export to other domestic and international markets. Local Enterprise Partnerships should also seek to understand the make-up and resilience of their business base as part of their forthcoming Local Growth Plans.

Alexandra Jones, Chief Executive of Centre for Cities said: “Small and medium sized businesses are the lifeblood of the UK’s economy but Small Business Outlook flags that many have been particularly affected by the impact of the recession on their local economies. They will face challenges ahead as further austerity measures have a knock on effect on local demand for their services.

“Government must recognise the importance of local economies to SME performance and resilience and ensure that local partners, including Local Enterprise Partnerships, have a clear role in delivering national business support policies. High quality, evidence based Local Growth Plans will be critical to helping UK cities navigate the bumpy road of recovery, while support from national organisations such as UKTI, as well as local partners will be vital to helping SMEs diversify their customer base and even move into exports."

Richard Coleman, director of SME from Zurich said: “The SME landscape is in a period of significant change influenced by increasing globalisation and new technological developments among other things. We are also seeing the transformation of the traditional high street and these trends are having an increasing impact on the growth opportunities and risks for local small businesses — from the tradesman to the high-street retailer and the exporting manufacturer.

“Cities have a significant role to play in helping their constituent small businesses capture the evolving opportunities and address the emerging risks; it is important that both local government and local business groups not only assess their current small business base and its comparative strengths, but also understand and plan for the changing shape and challenges of the SME sector on the horizon.

“Doing so will allow cities to provide a healthy backdrop of support for local small businesses, build a resilient local economy and ensure long-term economic growth, diversity and opportunity.”

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